Dear Valued Clients and Friends –
A fun and full day today in the Monday edition of Dividend Cafe …
Dividend Cafe on Friday did a deep dive into the reality of “flat” markets, and how they can often feel like anything but … This market dynamic is applied to the AI moment in a very practical way. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
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Market Action
- Markets opened up +200 points this morning and got up as much as +400 points before settling down and then staying in that +150 range the rest of the day
- The Dow closed up +146 points (+0.28%) with the S&P 500 up +0.70% and the Nasdaq +0.82%
*CNBC, DJIA, October 26, 2026
- While there are so many market stories playing out right now I love to tell, the one I think most worth telling is that the 10-year bond yield hit 5.31% on October 6, and hit 4.95% on Thursday. Did a 36-basis-point drop in just over two weeks mean that everyone was super afraid of government debt the last few months, and then not afraid of it all of a sudden in mid-October? Or did it mean that that whole theory of rising bond yields was as wrong as I previously said it was (you’re getting warmer)? In fact, the inflation data got worse in October, not better. So how, you ask, did bond yields drop if debt fears and inflation fears were pushing bond yields higher? The only answer is that the diagnosis was wrong to begin with. Supply-demand factors, market pricing and mechanisms (hedge funds and traders, to be precise), and increasing skepticism of perceived Fed hawkishness have all changed the tape a bit in recent weeks. And it can certainly change again as rate volatility remains elevated … But I believe that the long end got way oversold and that a proper diagnosis of why things happen remains a very important part of determining what to do about it.
- A down week for markets, yet the percentage of stocks in the S&P trading above their 200-day moving average has gone from 40% to 59% in the last few weeks. The tension right now between the cap-weighted index and the equal-weighted index is like something I have rarely seen in my career.
- That said, I find this chart utterly fascinating, for multiple reasons (h/t Callum Thomas) …
- The ten-year bond yield closed today at 4.99%, pretty close to flat on the day
- Top-performing sector for the day: Technology (+1.5%)
- Bottom-performing sector for the day: Communication Services (-1.42%)
- Coming into today, the S&P 500 is only down -3% from its recent all-time high … But under the hood, some more interesting realities can be found (h/t Charlie Bilello):
Top News Stories
- Brazil’s market was rocked today (down -20%) as Lula da Silva won a surprise re-election.
- Another massive funding mechanism ($63bn) was announced around AI compute in a multi-party transaction with an SPV formed with capital from multiple financing partners including BofA, Citi, Morgan Stanley, and Blackstone, to buy from Broadcom, to lease to Anthropic.
- And to not be the only AI finance deal in the news, Meta announced a $95 billion stock sale transaction to raise funds for its “emerging AI needs and opportunities”.
Public Policy
- With all the talk about what may happen in these Senate races and how it will sway the majority of the Senate in terms of party control, the wildcard that I now believe (from sources I trust a great deal) is that it is almost a certainty Sen. John Fetterman of Pennsylvania will switch after the election from Democrat to independent, but conference with the Republicans, meaning the Democrats may need one extra seat pick-up than previously thought.
- I do not know if the Trump administration is planning to escalate strikes against Iran after the midterms or not. I only know that in addition to yours truly not knowing, the New York Times also does not know, and neither do almost all members of the administration. If I were a betting man, I would say the President does not know, either.
- The Trump administration has stated they believe a trade deal with Canada is coming soon. In the meantime, they lifted a bunch of the 50% tariffs they imposed a few months back to try and alleviate the economic pain to northern U.S. states they had created.
Economic Front
- Real GDP growth for Q3 should be known this week, and most analysts are expecting it to come in around +3.3% annualized, which, when taken with other quarters, would amount to another year at exactly +2% (real growth). Of course, Q4 could push the number up or down a bit.
- The portion of economic activity and growth coming specifically from AI buildout and data center construction is more concentrated than we have ever seen.
Housing & Mortgage
- The average 30-year mortgage still sits above 7.3%.
Federal Reserve
- The Federal Open Market Committee will meet all day Tuesday and half-day Wednesday, with a rate announcement and a mid-day Wednesday press conference from the chairman. As of press time, the futures market for the federal funds rate places just a 10% probability of a rate hike this week.
Oil and Energy
- WTI Crude closed at $101.25, down -2% on the day
- The non-correlated nature of midstream played well again as the S&P dropped on the week while midstream energy stocks increased +1.5% on the week.
- Kinder Morgan’s large backlog set a good precedent for the quarter.
Ask TBG
| “I have a novice investment question. I often see some variation of the phrase ‘stocks tumbled amid investor selloff.’ Who are these investors that are selling-off the market? Is it your average day trader/speculator or institutional investors or fund managers or pension funds … or some mix of all of the above? I’m just curious who creates this market volatility.” ~ Mike D. |
| It’s a very fair question, and one many people would answer incorrectly. First of all, we have to remember that for every share of stock sold there was a share of stock bought, so the question can also be “who were the buyers?” whenever there is a “sell-off.” What makes a rally and what makes a sell-off is not that there were investors (of any category) selling OR buying, but by definition, investors doing BOTH. The issue is one of price: when sellers outnumber buyers, prices have to drop to meet the market-clearing price (in other words, buyers will materialize, but at a lower price). Each and every day in the market there are traders doing what they do, there are speculators doing what they do, there are index funds buying to meet their buy demand and selling to meet their sell demand; and yes, there are long-term players being active around selective opportunities (this includes wealth advisory firms like ours, pension funds, and more). There is, always and forever, a wide array of categories that “make a market.” And they all have different objectives, different timelines, different points of view, different fears, different liquidity needs, and so forth and so on. And on any given day, whether it be a sell-off day or not, market action reflects the aggregate, complex, multi-faceted, multi-causal sum of parts of all these categories of investors acting. This is, always and forever, what markets are … humans acting. |
On Deck
- Anybody else excited for the clocks to “fall back” on Saturday night? The 7:10 AM sunrise is obnoxious for this morning person.
- Hyper-scaler week as Google, Microsoft, and Amazon all report earnings this week.
More to Chew on
- If you have ever read an S-1 filing, I promise you’ve never read one like this
- Taking cyber-security compliance a little too far
Always fun to be here in the Newport Beach office (this time for a whopping 48 hours) Back to NYC Tuesday night/Wednesday morning … Reach out with any questions any time!
With regards,
David L. Bahnsen
Managing Partner, CIO
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
